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Wednesday, 20 November 19
FOREIGN DIRECT INVESTMENTS IN COMMERCIAL COAL MINING IN INDIA? - DIPESH DIPU
 In August 2019, Government of India announced its approval for Foreign Direct Investment (FDI) for coal mining, processing and sale. Not that FDI in coal mining sector was new, but novelty in that was that government now permitted foreign ownership of coal mines for commercial sale of coal produced from such mines. He justifications provided by government sources included need for competition in a sector that has been traditionally dominated by government-owned companies Coal India Limited and Singareni Collieries Company Limited; need for enhanced production as here has been shortfall in meeting demand; and, need for newer technologies that may bring in sustainability to coal mining. These indeed are commendable objectives and opening up the sector for foreign participation may certainly be considered a step in the right direction. However, public policy needs to be grounded in realism, and the reality of attractiveness of commercial coal mining in India does not bode well for foreign participation.
The response of government-owned companies for coal blocks on offer for allotment for commercial coal mining was announced in early August 2019 provides the evidence. Nine coal blocks were put on offer for sale of coal in markets and the eligibility for these were restricted to government-owned companies including the state government-owned ones. There were, however, only three coal blocks[1] that received applications by NMDC Limited, Jharkhand State Mineral Development Corporation and Madhya Pradesh State Mining Corporation. This lukewarm response may indicate towards the market sentiments for commercial coal mining in India. It must also be considered here that the coal blocks for allotment for government-owned companies do not have the two-stage auction based bidding for winning the blocks and, thus, the pay-out required to win these coal blocks may be lower in comparison to coal blocks put out for auctions. So, even with lower additional pay-out to government in the form of premium the coal blocks have not found many takers. There may be several underlying economic reasons, which are amplified for foreign participants, and thus, require consideration to evaluate if this approval for FDI in commercial coal mining would have any impact and if it would meet its stated objectives.
The first and the foremost is the economic feasibility of these mines. The foreign, and indeed any private company, would have to participate in auction process for winning a coal block, and commit to a competitive premium to access the resources. This has been an impediment for private sector participation in India, given the evidence of coal blocks awarded for captive consumption in power and non-regulated sectors that include cement, steel and other approved end users. There seems to be some sanity dawning on participants on these auction with every successive rounds of auction, seen from the lower winning premiums, and hence, it may be expected that the trend may continue. Nonetheless, the premium will certainly erode the margins for commercial miners, the extent of this erosion would be a function of degree of competition for the coal blocks. The margins are also likely to be uncertain in view of the price volatility of coal, which in Indian market is pegged with CIL price and a certain premium that reflects typically the discount that IL prices tend to have over energy-equivalent international prices. This uncertainty of prices is likely to be confounded by the uncertainty in demand-supply gap that these commercial miners are required to fulfil. There has been a shortfall in supply in the recent past, evident from the rise in coal imports in the last two years even with the stated objective of the government to reduce coal imports. This may present itself as an opportunity. However, the question is whether this shortfall is likely to sustain, and thus, create a marketplace for commercial miners. With a slump in thermal power generation and nearly absent pipeline of new coal based projects, this assumption may be quite a big one to make and decide in favour of making foreign direct investment in Indian coal mining.
Other important risks pertain to project execution. There have been several impediments in coal mining project implementations, such as procurement of licenses and permits, acquisition of land and rehabilitation and resettlement of project affected people. These, apart from the procedural challenges, involve risk of reputation. Business practices on all these accounts in mining sector have often been marred with controversies and have led to perceptions of externalities in these processes having significant influence on the outcomes. Foreign participants in Indian mining have been wary of these, and hence, have had little success to show even though they have had offices and a few exploration and contract mining projects in India. Apart from reputation, the risks in procurement of licenses and land acquisition create the risks of project delays, which may then translate into cost escalations, thereby impacting project economics. Coal mining projects may have such challenges in attracting foreign direct investment.
There are challenges of talent shortage and financing as well. Innovative technologies that the foreign miners are likely to bring in India will require high quality geo-statisticians, geologists, mine planners and mining engineers. India does produce graduates in these areas of study but quantities do no necessarily reflect quality, which are further compounded by the brain drain of talent into other industries, primarily, information technology. Mining industry in general, and coal mining in particular, has not been able to retain relent in the last decade or so, with advent of opportunities for the smart geoscientists and engineers in alternate industries. Foreign mining companies may find this crippling.
There are challenges in financing too. Coal mining projects may have been good candidates for resource-based financing, but that has not happened on account of several factors, not the least of those being dominance of government-owned companies priding themselves on debt-free balance sheets, and the quality of geological information that may be inferior to global standards. The market for debt for coal mining then often reduces itself to equipment financing with the equipment being securitised to the lenders. Globally preferred model of equipment leasing is still in its relatively early stages of comprehension and acceptance in Indian mining. With limited options of raising finances, the higher degree of equity investments may also be a deterrent for foreign investors as the may have comparable projects competing for scarce capital.
Coal mining industry has been on a downward spiral globally. Foreign large miners have divested or are divesting their stakes in coal projects. Global bankers have committed themselves to not financing coal and coal based power projects. Insurance companies are shying away from coal projects too. The ecosystem for coal mining project execution is dying. Epitaphs are being written on coal and its demise is predicted by governments, investors and policy analysts wold over. But for the coal addiction of Asia, China and India in particular, the demise may have been sooner. Under such gloomy outlook for the industry, with coal mining companies filing for bankruptcies frequently, it would be tough to get these foreign companies to look at Indian destinations favourably. An industry staring at terminal decline may not witness new investors, and old ones that may have been facing severe challenges in their home countries to look out for opportunities in India.
Optimism at this point of time of foreign miners participating in Indian coal mining sector, that presents a challenging business environment, may be misplaced. Only when the government calls for applications for coal blocks for sale of coal with permitted participation for foreign direct investment that the final picture shall emerge.
By Dipesh Dipu
Energy, Natural Resources and Infrastructure Expert
This article originaly published on economictimes and Linkedin
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Saturday, 30 November 19
IMO2020 GLOBAL SULPHUR CUT: GERMAN SHIPPING TO USE NEW TYPE OF FUEL VDR SURVEY
IMO2020 Global sulphur cut: German shipping to use new type of fuel VDR survey: Technical issues and costs are the biggest challenges - VDR
&nb ...
Saturday, 30 November 19
PANAMAX: LEVELS IMPROVED IN THE PACIFIC MARKET TOO WITH $11,000 BEING CONCLUDED ON AN 81,000DWT SHIP FOR AN INDONESIA TO CHINA COAL TRIP - BALTIC BRIEFING
Capesize
The market has been well supported over the past week, led primarily by the Atlantic Basin. After bottoming last week, sentiment was s ...
Friday, 29 November 19
FITCHRATINGS MAINTAINS NEGATIVE 2020 OUTLOOK ON SHIPPING, AS TIGHTER SUPPLY HELPS, BUT SOFTER DEMAND DRAGS
Fitch’s Sector Outlook: Negative
We maintain a negative sector outlook for global shipping because of the forecast slowdown of ...
Friday, 29 November 19
INDONESIA PRODUCES 390 MLN TONNES OF COAL IN JAN-SEPT: MINISTER - REUTERS
Indonesia’s production of coal for the January-September period was 390 million tonnes, Energy and Mineral Resources Minister Arifin Tasrif s ...
Wednesday, 27 November 19
SHIPPING MARKET INSIGHT - INTERMODAL
As the end of the fourth quarter is approaching, one could say that the wet market has maintained the strong pace observed during the third qu ...
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- Indian Energy Exchange, India
- VISA Power Limited - India
- MS Steel International - UAE
- Madhucon Powers Ltd - India
- Minerals Council of Australia
- Kobexindo Tractors - Indoneisa
- Latin American Coal - Colombia
- Kumho Petrochemical, South Korea
- Bukit Makmur.PT - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Planning Commission, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Interocean Group of Companies - India
- Cement Manufacturers Association - India
- Chettinad Cement Corporation Ltd - India
- Timah Investasi Mineral - Indoneisa
- Intertek Mineral Services - Indonesia
- CNBM International Corporation - China
- Siam City Cement PLC, Thailand
- Rashtriya Ispat Nigam Limited - India
- Australian Coal Association
- Petron Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Electricity Authority, New Zealand
- Indian Oil Corporation Limited
- Bahari Cakrawala Sebuku - Indonesia
- Binh Thuan Hamico - Vietnam
- Attock Cement Pakistan Limited
- Karbindo Abesyapradhi - Indoneisa
- Merrill Lynch Commodities Europe
- Lanco Infratech Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Sinarmas Energy and Mining - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Global Coal Blending Company Limited - Australia
- Global Green Power PLC Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Vizag Seaport Private Limited - India
- Medco Energi Mining Internasional
- Chamber of Mines of South Africa
- Bharathi Cement Corporation - India
- Gujarat Sidhee Cement - India
- Heidelberg Cement - Germany
- Central Electricity Authority - India
- PNOC Exploration Corporation - Philippines
- Globalindo Alam Lestari - Indonesia
- Malabar Cements Ltd - India
- Kaltim Prima Coal - Indonesia
- Siam City Cement - Thailand
- Energy Development Corp, Philippines
- Altura Mining Limited, Indonesia
- Meralco Power Generation, Philippines
- London Commodity Brokers - England
- Rio Tinto Coal - Australia
- Karaikal Port Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Marubeni Corporation - India
- Videocon Industries ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Coalindo Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Bukit Asam (Persero) Tbk - Indonesia
- Independent Power Producers Association of India
- Holcim Trading Pte Ltd - Singapore
- Star Paper Mills Limited - India
- Edison Trading Spa - Italy
- South Luzon Thermal Energy Corporation
- Singapore Mercantile Exchange
- Directorate Of Revenue Intelligence - India
- Economic Council, Georgia
- Larsen & Toubro Limited - India
- TeaM Sual Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Electricity Regulatory Commission - India
- Kapuas Tunggal Persada - Indonesia
- Antam Resourcindo - Indonesia
- LBH Netherlands Bv - Netherlands
- Bayan Resources Tbk. - Indonesia
- Deloitte Consulting - India
- Salva Resources Pvt Ltd - India
- Parliament of New Zealand
- Aboitiz Power Corporation - Philippines
- Coal and Oil Company - UAE
- Bulk Trading Sa - Switzerland
- Agrawal Coal Company - India
- Sical Logistics Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Metalloyd Limited - United Kingdom
- Indika Energy - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Africa Commodities Group - South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Baiduri Energy - Indonesia
- Central Java Power - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- New Zealand Coal & Carbon
- IEA Clean Coal Centre - UK
- Kohat Cement Company Ltd. - Pakistan
- Ind-Barath Power Infra Limited - India
- Grasim Industreis Ltd - India
- Dalmia Cement Bharat India
- India Bulls Power Limited - India
- Makarim & Taira - Indonesia
- Sree Jayajothi Cements Limited - India
- ASAPP Information Group - India
- European Bulk Services B.V. - Netherlands
- Indonesian Coal Mining Association
- Essar Steel Hazira Ltd - India
- Pendopo Energi Batubara - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- ICICI Bank Limited - India
- Bangladesh Power Developement Board
- Asmin Koalindo Tuhup - Indonesia
- Manunggal Multi Energi - Indonesia
- Thiess Contractors Indonesia
- Wood Mackenzie - Singapore
- Oldendorff Carriers - Singapore
- SMC Global Power, Philippines
- Tata Chemicals Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Power Finance Corporation Ltd., India
- TNB Fuel Sdn Bhd - Malaysia
- Commonwealth Bank - Australia
- Uttam Galva Steels Limited - India
- Meenaskhi Energy Private Limited - India
- Parry Sugars Refinery, India
- Directorate General of MIneral and Coal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Mercuria Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Mercator Lines Limited - India
- Simpson Spence & Young - Indonesia
- Formosa Plastics Group - Taiwan
- Vijayanagar Sugar Pvt Ltd - India
- Georgia Ports Authority, United States
- Semirara Mining Corp, Philippines
- Orica Australia Pty. Ltd.
- Global Business Power Corporation, Philippines
- IHS Mccloskey Coal Group - USA
- Mintek Dendrill Indonesia
- Eastern Energy - Thailand
- Standard Chartered Bank - UAE
- OPG Power Generation Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Posco Energy - South Korea
- Ceylon Electricity Board - Sri Lanka
- Kideco Jaya Agung - Indonesia
- Price Waterhouse Coopers - Russia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bhushan Steel Limited - India
- Riau Bara Harum - Indonesia
- Carbofer General Trading SA - India
- Borneo Indobara - Indonesia
- Sakthi Sugars Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Indogreen Group - Indonesia
- Barasentosa Lestari - Indonesia
- SMG Consultants - Indonesia
- Anglo American - United Kingdom
- The Treasury - Australian Government
- Sindya Power Generating Company Private Ltd
- Xindia Steels Limited - India
- Electricity Generating Authority of Thailand
- Baramulti Group, Indonesia
- Renaissance Capital - South Africa
- Maheswari Brothers Coal Limited - India
- Trasteel International SA, Italy
- Toyota Tsusho Corporation, Japan
- Banpu Public Company Limited - Thailand
- Therma Luzon, Inc, Philippines
- Vedanta Resources Plc - India
- Savvy Resources Ltd - HongKong
- CIMB Investment Bank - Malaysia
- Ministry of Transport, Egypt
- Ambuja Cements Ltd - India
- Energy Link Ltd, New Zealand
- Romanian Commodities Exchange
- Billiton Holdings Pty Ltd - Australia
- Miang Besar Coal Terminal - Indonesia
- Jaiprakash Power Ventures ltd
- McConnell Dowell - Australia
- Thai Mozambique Logistica
- Port Waratah Coal Services - Australia
- Mjunction Services Limited - India
- Bhoruka Overseas - Indonesia
- GVK Power & Infra Limited - India
- Leighton Contractors Pty Ltd - Australia
- Kartika Selabumi Mining - Indonesia
- Bhatia International Limited - India
- San Jose City I Power Corp, Philippines
- Australian Commodity Traders Exchange
- White Energy Company Limited
- Kalimantan Lumbung Energi - Indonesia
- Ministry of Mines - Canada
- Orica Mining Services - Indonesia
- PowerSource Philippines DevCo
- Goldman Sachs - Singapore
- The State Trading Corporation of India Ltd
- The University of Queensland
- Alfred C Toepfer International GmbH - Germany
- Ministry of Finance - Indonesia
- Iligan Light & Power Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Aditya Birla Group - India
- SN Aboitiz Power Inc, Philippines
- PTC India Limited - India
- Wilmar Investment Holdings
- Sarangani Energy Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- Tamil Nadu electricity Board
- GMR Energy Limited - India
- Eastern Coal Council - USA
- Sojitz Corporation - Japan
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